Recent media commentary has emphasized the impact that delayed household formation among members of the millennial generation is having on the broader housing market. However, despite a pervasive stereotype of millennials as entitled consumers who are content to live in their parents' basements, there seems to be a consensus within the housing industry that market forces are behind the lack of purchases by young families.
Perhaps the most critical factor is the limited availability of affordable housing. As this blog has discussed previously, high value homes have been accounting for a growing share of new residential construction in the United States as the economy has recovered and buyers have become interested in luxury features such as spare bedrooms, extra bathrooms and multi-vehicle garages.There has also been a longer-term shift toward larger houses, with data from the U.S. Census Bureau showing that the average size of a newly built residential property increased by about 50 percent between 1973 and 2013.
These trends, as well as high demand from investors interested in acquiring properties to rent, have driven up the cost of buying a home significantly. In the context of a sluggish economy with high unemployment, it is easy to see why many millennials are struggling to find a house they can afford, especially because younger professionals with less experience and fewer connections have been hit disproportionately hard by lingering softness in the job market.
At the same time, paying off student loans continues to become an increasingly large problem for many Americans. Last year, the total amount of outstanding student loan debt exceeded $1 trillion for the first time. The National Center for Education Statistics polled first-time bachelor's degree recipients in 2001 and 2009, and found that the number of respondents allocating more than 12 percent of their income to student loan payments increased from 18 percent to 31 percent during that time period.
Is supply catching up with demand?
Builders do seem to be interested in addressing the needs of this underserved market. For example, D.R. Horton, the largest U.S. homebuilder, announced earlier this year that it has launched a new subsidiary called Express Homes, which will focus exclusively on smaller houses in the $120,000-$150,000 price range. CEO Donald Tomnitz called this "the next segment of the market to recover" in a press release announcing the new venture.
On June 20, Express Homes announced that units in a Southwest Florida development are now available for purchase. The company referred to these properties as "ideal for first-time homebuyers, those moving out of the rental market, and anyone who enjoys great value."
Builder Magazine notes that developers will continue to introduce new properties in millennial-friendly price ranges, but that their ability to produce enough to meet demand is dependent on the availability of adequate lots, materials and labor. Overextending the construction supply chain can not only affect the price of new homes, but also make it more expensive to repair or replace existing structures.
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